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Regression Modeling with Actuarial and Financial Applications by Edward W. Frees

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11

Categorical Dependent Variables

Chapter Preview. A model with a categorical dependent variable allows one to predict whether an observation is a member of a distinct group or category. Binary variables represent an important special case; they can indicate whether an event of interest has occurred. In actuarial and financial applications, the event may be whether a claim occurs, whether a person purchases insurance, whether a person retires or a firm becomes insolvent. This chapter introduces logistic regression and probit models of binary dependent variables. Categorical variables may also represent more than two groups, known as multicategory ...

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